casinos blame tax

New fees, fewer perks add to Indiana's gains

The Illinois casino industry feared it would lose gamblers to the betting emporiums in neighboring Indiana when it started to pass on the costs of a hefty state tax hike that went into effect July 1.

As it turns out, Illinois already was losing ground to the Hoosier state, and the moves to shift tax costs to gamblers, which began in earnest in the past few weeks, likely will accelerate the trend.

For close to a decade, Charles Jackson has been a steady patron of Harrah's Joliet casino, plunking down chips at the tables and pulling slots two or three times a week.

But on Monday, when the 36-year-old mortgage company owner showed up at Harrah's, it was, he said, for the last time. On that day, the casino began charging gamblers $5 just to get in.

"Monday was my last day," Jackson said Wednesday as he and his wife, Jacqueline, were placing bets at a roulette table across the state line in Gary, Ind.

What steams gamblers about an entrance fee, he said, "is the fact that I'm already coming to spend money with you, money I can probably lose, and that I used to get in free and drink for free. And now you want me to pay like it's an amusement park--that's not what it is."

For Jackson and his wife, the decision to motor to Gary's Majestic Star Casino was a personal one. But the Illinois casino industry fears such choices could be the start of a major migration as the state's casinos begin hitting customers with more costs and providing fewer extras in order to offset the hefty tax hikes that went into effect July 1.

Illinois casinos have already begun charging for admission and parking, increased prices for food and drinks, shortened operating hours and removed some table games in favor of more slot machines.

The new tax comes as Illinois already has lost ground to Indiana in the past year--a phenomenon that observers attribute to that state's approval of dockside gambling and of unlimited numbers of gambling positions at casinos. They also note that Indiana has a lower tax structure than Illinois, meaning casinos there face less pressure to cut customers' perks.

The trend could pick up steam if gamblers like the Jacksons react badly to Illinois casinos' attempts to shore up their profitability in the face of the state's higher taxes--the highest in the country on commercial casinos--which casino owners say will make a sizable dent in their profits.

Of course, Swoik's organization of Illinois casino operators would be expected to say that. Its members are chafing at the tax hikes of the past two years, which subject casino receipts to tax rates as high as 70 percent, and at the limits on gaming positions.

But he is backed up by data collected by the Illinois Gaming Board, which show an erosion of market share in key geographic regions during the state's 2003 fiscal year, which ended June 30.

In the behemoth Chicago-Northwest Indiana region, for instance, the four Chicago-area casinos held 52.4 percent of the $2.32 billion market in the 2003 fiscal year, down from a 55.6 percent share the prior year. Similar shifts showed up in two of the three other state regions with cross-border competition, with the third remaining status quo.

A big boost for Indiana's 10 casinos came last August, when that state moved to dockside gambling, which meant the gaming boats no longer had to cruise, and customers no longer had to wait to board at a scheduled cruise time. (Illinois made that move in 1999.)

Indiana expects another lift from a move to 24-hour operations, which started earlier this month. Illinois restricts its nine operating casinos to less than 24 hours.

But the biggest differential in the next 12 months will be the tax structures of the two states.

In July 2002, Indiana raised its wagering tax schedule, with graduated rates ranging from 15 percent on the first $25 million in adjusted gross revenue to 35 percent on revenues exceeding $150 million. And there is a $3 per head admission tax.

Last month, Illinois raised its tax structure for the third time since the inception of casino gambling in 1991. The graduated rates range from 15 percent on the first $25 million in adjusted gross revenue to 70 percent on revenues exceeding $250 million, the latter mainly affecting the big Chicago-area operations.

The $3 admission tax was raised for casinos with the highest attendance levels, with some paying $4 per customer and others paying $5.

Illinois Gov. Rod Blagojevich's office stands behind the hikes.

"The big picture for us is that the casino industry is and will continue to be very, very profitable," said spokeswoman Abby Ottenhoff. "And the governor's goal is to make sure Illinois' economy is healthy, and a critical part of that is closing the $5 billion deficit and making sure that our budget is balanced . . . and the casino industry is one of many asked to share in closing the deficit."